2 March 2018updated 24 Jun 2021 12:25pm

Austerity has worked? Don’t believe a word of it

Conservative economic policy has failed on its own terms.

Mission accomplished? Two years behind schedule, the Conservatives have achieved a current account surplus – that is to say, the government is taking more in on revenue that it spends day-to-day.

David Cameron and George Osborne have been exchanging high-fives on Twitter, as has Andrew Cooper, the Conservative peer and intellectual godfather of Tory modernization. “Austerity worked” is the message of the day.

Their argument is bolstered by the fact that, according to the International Monetary Fund’s analysis that the United Kingdom and Ireland, the two European nations that adopted “spending first” methods of austerity (that is, they opted to close their current account surpluses largely through spending cuts rather than spending) enjoyed faster growth than the rest of western Europe since the financial crisis. (At least until the Brexit vote – since then, the United Kingdom has become a laggard as far as economic growth across the Continent goes.)

Are they right? Well, maybe. But there are three big missing parts of the story here. The first, of course, is the significant human cost – the increase in homelessness to name just one – of balancing the books in the manner of Cameron and Osborne.

The second is that Ireland and the United Kingdom were also more badly exposed to the consequences of the crisis: Ireland in particular may have enjoyed higher trend growth simply because it had further to come back from. Then there’s the third: the struggles of the Eurozone countries. In the United Kingdom, as much as it pains me to say it, it seems very likely that the decision to stay out of the Euro was a bigger factor in the UK’s performance relative to the rest of western Europe than any decision taken by George Osborne or David Cameron. If there is a Tory politician who can take validation from that, it is William Hague. (Others with a good claim include Gordon Brown and his then-aide Ed Balls.)

But the fourth is the state of British politics in 2018. In the years of spending restraint, we have voted to leave the European Union, a decision that Cooper, Osborne, and Cameron all, in my view rightly, regard as a historic disaster. It’s hard to see how pro-European Conservatives can look at the current political situation – their own faction in perhaps permanent eclipse, anti-immigration and anti-trade sentiment on the march, etc. – and conclude that austerity has been a success.

Then when you widen that view to what’s happened to the Labour party, where a man who all Conservatives regard to be a danger not only to the British economic model but its foreign policy orthodoxy too is the party’s unchallenged leader and polled 12 million votes, and again, it is hard to sustain the argument that austerity has been anything other than a failure for its architects’ political objectives.